According to a Bank Negara statement made in The Financial Stability and Payment Systems Report 2012, 51% of Malaysians carry forward their credit card balance every month. The strain of not only repaying that balance but a hefty rate of interest (12-18% p.a. or more) on top of it is likely stretching budgets to breaking point. It doesn’t matter how you racked up that debt - whether you needed it for an important surgery or car repair, or even if you gave in to temptation at one too many sale events - it needs to be paid back.
Whatever the reason you've got a huge credit card bill banks don’t discriminate as much as the moral police - you'll be charged the same interest regardless of how you got the balance.
So if you’re tired of paying hundreds of ringgit on your credit card balance – only to find very small amounts shaved off the total amount – a balance transfer could be your answer.
What is a balance transfer on a credit card?
A balance transfer literally means transferring one full credit card balance onto another credit card. Okay, the card doesn’t necessarily have to be full but some balance transfer programmes do require that you have a ‘minimum’ amount of between RM1,000 – RM3,000 before they allow you to transfer.
It’s important to note however, that the two cards have to be from different issuers.
Why would anyone want one?
If you’re looking at the process and wondering why anyone would simply transfer one card balance to another for no good reason; hold up. There is a good reason: Because some balance transfers offer you as low as zero interest for a decent amount of time on the balance that has been transferred. This is due to stiff credit card competition between banks. In order to ‘poach’ customers from another bank – they offer you maybe, 0% interest for 6 months on your balance if you’ll switch cards.
So the answer to why anyone would want to transfer a balance is to enjoy low (or even no) interest on their balances for a set number of months to allow them to pay off their balances. Essentially you're buying some time to pay off that balance without seeing interest costs start adding heavily to that debt.
Balance transfer packages in the market offer interest rates as low as 0% up to approximately 6%. Tenures will also vary depending on the bank and rate. Usual tenures range from 6 months to 3 years with the 0% rate usually being offered only for 6 months.
Basic requirements for a Balance Transfer
If you’re thinking of taking a balance transfer here are some things you should consider:
1. How much is the balance you want to transfer?
This important for a few reasons: the bank in question may have a minimum transfer requirement; they may need you to pay off the whole amount in the time of the agreed special low interest rate; and you need an adequate available balance on the other card you want to transfer this amount to.
Considering the questions above;
2. Which bank offers you the best balance transfer rate?
Of course, finding this out can be tricky so we’ve done the compiling for you. Check out our balance transfer page for a side-by-side comparison of the best rates.
3. Do you already have a credit card account with your destination bank?
In order to transfer the balance, you must have a credit card to transfer the balance to at your chosen bank. If not, you’ll have to apply for one.
4. Is the remaining credit limit on your card enough to hold the transferred balance?
If you already have a card account with the bank of choice; or if you just got one; is the credit limit enough to accommodate the amount you want to transfer?
5. Read the fine print!
Before signing up for ANY banking product – always read the fine print! Ask questions too if the information isn’t readily available. It’s important to know if the bank requires you to pay off the whole balance in the stipulated time or if you can continue paying the minimum payments. Then check your finances to see if you can afford this. Also take note of fees and charges. Some banks claim offer a 0% transfer but then charge you an upfront ‘processing/admin fee’ of say, 3% of the transferred total. This makes the transfer a 3% a year one and NOT a 0% BT.
There are also other fees such as late payment and early settlement fees.
Best practices to keep in mind
So you’ve got a balance transfer and are happily on the way to saving money on your interest. But here’s the problem many people face – they end up either not paying their monthly required sums or the use the old, now empty, card to rack up even more debt! In such scenarios, your balance transfer ends up costing you more money than it saves you! To avoid such a situation; keep these best practices in mind:
- Do not use the new card your balance has been transferred to. Even though you have remaining credit – best to finish off paying the transferred balance first.
- Pay the set monthly amount. The bank will always give you the recommended payment amount in order to settle your account quickest. If you miss a payment, pay less or simply pay late; you may lose your low interest rate and the interest will climb back to the usual 17-18%.
- Make sure the care you are transferring onto is empty. If you add a balance transfer on top of an already revolving amount – you create a convoluted interest calculation system than could end up costing you more in the long run.
Cancel the old card! Once you’ve transferred your balance, you should have an empty card. Make sure you cancel it ASAP to avoid reusing it and piling on more owed amounts!
Ensure your balance transfer works for you and not against you!